The process of filing for bankruptcy is not always straightforward. In order for Maryland residents to file for Chapter 7 bankruptcy, one of the most important steps involves the means test. If you’re considering filing for Chapter 7 bankruptcy, understanding the details of the means test is an important part of the process.
First step of the means test
The first step of the bankruptcy means test involves evaluating your personal income as it compares to Maryland’s median income. You can find the information about your state’s median income levels through a chart provided by the US Department of Justice. In order to compare your income to the information provided on that chart, you should gather as much documentation as possible about your own income over the last six months.
The means test allows for some adjustments when evaluating income from the previous six months. For instance, if you had a job for three of those six months before getting laid off, the means test takes that drop in income into consideration. If your income is lower than the state median, you have passed the means test and can proceed with Chapter 7 bankruptcy filings.
Step 2 of the means test
You should also gather information about your expenses during that six-month period. “Allowable expenses” include rent, groceries, medical care and other unavoidable costs. Any money left after calculating those expenses is “disposable income” that you can use to pay off debt.
These allowable expenses make Chapter 7 bankruptcy possible for people who don’t pass the first portion of the means test. Additionally, this phase opens up the possibility of Chapter 13 bankruptcy for those who cannot file for Chapter 7 bankruptcy.
If you fail the means test for Chapter 7 bankruptcy, Chapter 13 becomes an option. This means that you have to enter a three or five-year debt repayment plan.